The US Senate and House of Representatives is busily putting together a stimulus package that should cost $825 billion.  The massive spending package, all conducted with borrowed money, will be spread over a wide variety of programs designed to “stimulate the nation back to prosperity”.   All of the debate on the stimulus package seems to center on how the money should be spent.  No one is debating whether we can afford this massive spending.  There has been no intelligent discussion or analysis of whether the stimulus will work, despite the historical evidence that it won’t (See Stimulus Plan Condemns Us To Further Wealth Destruction.

Most Americans seem optimistic that the stimulus plan will work and that the money will be wisely spent.

Let’s look at some early returns for an idea of how $850 billion will be spent.

Politicians Asked Feds to Prop Up Ailing Bank

Two Illinois congressmen urged the Treasury in October to avoid taking any regulatory action against a struggling bank in their state, illustrating the aggressive efforts some politicians are taking to help hometown lenders during the bank crisis.

“This is a disturbing parallel to precisely some of those things that made the savings-and-loan debacle into a political scandal as well as a financial scandal,” said William Black, an associate professor at the University of Missouri-Kansas City, who was a bank regulator in the S&L crisis.

Regulators didn’t think National Bank of Commerce qualified for a cash injection because its financial condition was so perilous. On Oct. 22, Ronald G. Schneck, an official of the bank’s federal regulator, the Office of the Comptroller of the Currency, told the bank it should “act as if capital replenishment funds will not be received,” according to the letter by Reps. Davis and Gutierrez.

Instead, on Nov. 6, OCC officials told the bank it wouldn’t be getting any TARP money. They said the Treasury had decided “to not grant assistance to restore to the Bank to an adequately capitalized status,” according to a document reviewed by The Wall Street Journal.

An OCC spokesman said: “While we don’t comment on TARP applications, it should be noted that the amount needed to recapitalize the bank was far in excess of what was allowable under TARP’s capital purchase program.”

The US Treasury did the right thing when they refused to invest more money in this failing bank.  What thought process lead these 2 congressmen to believe that they would be spending money wisely by investing taxpayer money in a Zombie bank?

Political Interference Seen in Bank Bailout Decisions

Troubled OneUnited Bank in Boston didn’t look much like a candidate for aid from the Treasury Department’s bank bailout fund last fall.

The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives’ use.

Nonetheless, in December OneUnited got a $12 million injection from the Treasury’s Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.

Treasury Secretary nominee Timothy Geithner, testifying Wednesday at his Senate confirmation hearing, acknowledged “there are serious concerns about transparency and accountability…confusion about the goals of the program, and a deep skepticism about whether we are using the taxpayers’ money wisely.”

“It’s totally arbitrary,” says South Carolina Gov. Mark Sanford. “If you’ve got the right lobbyist and the right representative connected to Washington or the right ties to Washington, you get the golden tap on the shoulder,” says Gov. Sanford, a Republican.

Several Ohio banks received funds after Ohio’s congressional delegation complained bitterly about the treatment of Cleveland-based National City Corp., which regulators forced into a merger rather than provide with cash. And in Alabama, the state’s top banking official says a windfall there — five banks are slated to receive funds — is testament to the influence of two powerful Alabama lawmakers who sit on key congressional committees.

Rep. Frank, besides heading the Financial Services Committee, has longstanding ties to OneUnited, and recalls having had a deposit account at a predecessor bank in the 1960s.

Later that month, Rep. Frank was intimately involved in crafting the legislation that created the $700 billion financial-system rescue plan. Mr. Frank says that in order to protect OneUnited bank, he inserted into the bill a provision to give special consideration to banks that had less than $1 billion of assets, had been well-capitalized as of June 30, served low- and moderate-income areas, and had taken a capital hit in the federal seizure of Fannie Mae and Freddie Mac.

On Oct. 27, the FDIC and Massachusetts bank regulatory officials, alleging poor lending practices and executive-compensation abuses by OneUnited, slapped it with a strong enforcement action, a cease-and-desist order. Among other things, the officials told the bank to get rid of a 2008 Porsche for executives.

Mr. Frank said he didn’t try to interfere with the regulatory process. “We have never told the regulators that they should ease up on them or not order them to do this or that,” he said.

He cites the bank’s status as the state’s only financial institution owned by African-Americans.

The free market should have been allowed to work in this case and this poorly run bank with its overpaid executives should have been closed.  Instead, based on Mr Frank’s parochial interests and ties to this corrupt institution, OneUnited receives $12 million from the taxpayer.  It would be interesting to know how much in political contributions Mr Franks received from OneUnited.

Even at a time of an unprecedented national crisis, our politicians cannot take the high road and look at the situation from a standpoint of the National interest.  The US itself will be just as bankrupt as OneUnited if we attempt to bailout every failed business entity in the country.  If the nation survives this crisis, it will be in spite of the actions taken in Washington.

In an incredibly ironic statement on the stimulus plan, Democratic Senator Inouye of Hawaii stated that “We must respond to this crisis with all the weapons at our disposal.  If we fail to act, the situation will almost certainly worsen, and the American people will continue to pay a heavy price.”  With clueless fools like Senator Inouye voting to spend trillions of taxpayer dollars to help us, we will be lucky to survive as a nation.  The Senator clearly does not see that the government and the Fed caused the financial meltdown.  He clearly does not see that the government is only going to make the situation far worse by trying to reflate the asset bubble.  Most of all he clearly does not see that he is putting the nation on the road to financial destruction by burying us in more debt.

My take on the stimulus plan is that the money will be largely wasted by keeping alive Zombie business entities that are poorly run by overpaid executives.  Money to the losers will only serve to hurt the successful.  The successful should not have to subsidize those who fail; this type of wealth shifting will  make us all equally poor.  Much of the stimulus money spent will be based on political connections, self interest and self dealing.   The economic situation will worsen as borrowed money is spent foolishly.  The only sure result of the stimulus package will be to put the sovereign credit of the United States at further risk.